Today, we have a rogue central bank. It’s destroyed honest price discovery in the money and capital markets.
I once said, “Invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.”
You can say the same thing about Yellen today.
The Fed’s monetary injections, “puts” and safety nets under the price of risk assets now drive everything. Accordingly, investors ignore risk and mechanically “buy the dips.”
This irrationally inflates asset prices — that is, until the bubble becomes unsustainable and then splatters violently, as it has done twice already this century.
The vital core of capitalism is the capital markets. That’s where capital is supposed to be raised and allocated. It’s where future profits are rationally assessed and discounted. And it’s where entrepreneurs and business enterprises are honestly rewarded for their contributions to free market prosperity.
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